The Overnight Report: Underestimating The Risk?

Daily Market Reports | Feb 19 2020

World Overnight
SPI Overnight (Mar) 7050.00 + 4.00 0.06%
S&P ASX 200 7113.70 – 11.40 – 0.16%
S&P500 3370.29 – 9.87 – 0.29%
Nasdaq Comp 9732.74 + 1.57 0.02%
DJIA 29232.19 – 165.89 – 0.56%
S&P500 VIX 14.83 + 1.15 8.41%
US 10-year yield 1.56 – 0.03 – 2.02%
USD Index 99.46 + 0.28 0.28%
FTSE100 7382.01 – 51.24 – 0.69%
DAX30 13681.19 – 102.70 – 0.75%

By Greg Peel

Virus Bites I

Overnight Apple had warned that it would miss prior revenue guidance due to the impact of the virus on sales in China. Apple has 42 stores in China and all are currently closed.

After the bell on Monday in Australia, local tech company Altium ((ALU)) reported earnings and issued weak guidance, due to the impact of the virus. Altium fell -7.9% yesterday and other tech stocks fell in sympathy, sending the IT sector down -1.2%.

BHP Group ((BHP)) rose 0.8% after announcing a record dividend, albeit still a little light for some. Management cited short term uncertainty, suggesting it is taking a “cautious” approach due to the virus.

It’s started. This result season will ultimately be more about forward guidance and less about look-back earnings for those companies with any sort of exposure to China. And they are many.

Unrelated to the virus, but still about impending death, was the result from non-ASX200 company Seven West Media ((SWM)), owner of the Seven Network. It fell -21% on its result, citing weak advertising revenue. This sparked a -5.4% fall in ASX200 stock and rival dinosaur Nine Entertainment ((NEC)), and presumably explains a -5.8% fall for oOh!media ((OML)) on a tenuous advertising connection.

Consumer discretionary fell -0.7%.

Cochlear ((COH)) disappointed with its result and fell -3.4%. Healthcare fell -0.7%.

Bendigo & Adelaide Bank ((BEN)) came out of its post-result trading halt, having cut its dividend and announced a capital raising, and fell -5.6%. The big banks found buyers and the sector rose 0.4%.

The banks would have been buoyed by the minutes of the last RBA meeting, which rekindled expectations of another rate with perhaps the virus as the trigger.

“The Board would continue to monitor developments carefully, including in the labour market, and remained prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”

Previously the RBA had surprised economists with its seemingly hawkish stance, which in balance suggested rates will be on hold for the foreseeable future.

To the upside yesterday, a good result from resource sector contractor Monadelphous ((MND)) had that stock up 5.5% to win the day, while investors have continued to trickle back into AMP ((AMP)) following its result last week. It was up 5.3% yesterday.

Overnight Wall Street has responded to Apple’s profit warning, yet our futures are up slightly this morning.

Virus Bites II

Being a US$1.4trn company, and a component of all three major US indices, Apple doesn’t have to move much to have an impact. It fell -1.8%.

That said, the Nasdaq did manage to sneak into the positive thanks to gains elsewhere, including Tesla, which is off and running again as analysts scramble to raise their price targets.

Otherwise, Apple’s warning triggered a general sell-off in all things China-related, from tech component manufacturers to retailers. After a long weekend, Wall Street is beginning to wonder whether shrugging off the virus last week and pushing back to all-time highs was the right idea.

As the count hits 1900/73,000 with little sign of slowing, gold has jumped again, rising twenty dollars overnight, while the US ten-year bond yield is falling again, down -3 basis points to 1.56%.

Yet manufacturing in the US appears not to have been impacted, as yet. The Empire State business conditions index has risen 8.1 points to 12.9 to a nine-month high, when economists had forecast 4.0. This number can be quite volatile however.

In other news, and apropos of dinosaurs mentioned above, once great US department store chain Macy’s last night had its credit rating downgraded to “junk” by S&P.

Looking ahead, the question for Wall Street is how bad will the virus problem get? Will it be a one quarter impact, as initially suggested, or maybe two? When should I look to pick up stocks on the downturn?

That is the common theme: commentators agree the virus is throwing up a golden opportunity to pick up stocks missed out on during the run up this year. But as to when it is safe to go back in the water is the point of contention.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1601.60 + 20.80 1.32%
Silver (oz) 18.18 + 0.42 2.36%
Copper (lb) 2.60 – 0.02 – 0.83%
Aluminium (lb) 0.78 – 0.00 – 0.06%
Lead (lb) 0.87 + 0.01 1.23%
Nickel (lb) 5.81 – 0.12 – 2.00%
Zinc (lb) 0.97 – 0.01 – 1.30%
West Texas Crude 52.11 – 0.22 – 0.42%
Brent Crude 57.75 + 0.11 0.19%
Iron Ore (t) futures 89.15 – 0.95 – 1.05%

Traders have cited subdued demand for falls in copper and nickel prices.

Not a lot going on elsewhere beyond gold’s jump.

The Aussie is down -0.5% to US$0.6686 as expectations of an RBA rate cut are rekindled. Put the gold price and Aussie together and it will be a good day for the gold miners.

Today

The SPI Overnight closed up 4 points.

Australia’s December quarter wage price index is out today.

The minutes of the last Fed meeting are out tonight.

In the local results season, today is the big one, by sheer number of reporting companies. Tomorrow and Friday aren’t much smaller.

I won’t bother trying to list highlights but note that Westpac ((WBC)) will also issue its quarterly update today.

For a full list of earnings results due today please refer to the FNArena Corporate Results Monitor (https://www.fnarena.com/index.php/reporting_season/).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AGL AGL ENERGY Upgrade to Neutral from Sell Citi
Upgrade to Hold from Reduce Morgans
ALU ALTIUM Downgrade to Lighten from Hold Ord Minnett
AMP AMP Upgrade to Neutral from Sell UBS
BPT BEACH ENERGY Upgrade to Outperform from Neutral Credit Suisse
BXB BRAMBLES Downgrade to Underperform from Neutral Credit Suisse
CTD CORPORATE TRAVEL Downgrade to Hold from Add Morgans
GMG GOODMAN GRP Upgrade to Hold from Sell Ord Minnett
GWA GWA GROUP Downgrade to Neutral from Outperform Macquarie
MFG MAGELLAN FINANCIAL GROUP Downgrade to Sell from Hold Ord Minnett
NAB NATIONAL AUSTRALIA BANK Upgrade to Equal-weight from Underweight Morgan Stanley
NCM NEWCREST MINING Downgrade to Lighten from Hold Ord Minnett
NGI NAVIGATOR GLOBAL INVESTMENTS Downgrade to Neutral from Outperform Macquarie
PPE PEOPLE INFRASTRUCTURE Downgrade to Hold from Add Morgans
Downgrade to Accumulate from Buy Ord Minnett
QBE QBE INSURANCE Upgrade to Add from Hold Morgans
RRL REGIS RESOURCES Downgrade to Lighten from Hold Ord Minnett
S32 SOUTH32 Upgrade to Accumulate from Hold Ord Minnett
SM1 SYNLAIT MILK Upgrade to Buy from Neutral UBS

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

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